Pricing Game: The Interactions between Incumbents and Sharing Platforms

This paper considers a peer-to-peer sharing platform competes with an incumbent firm, focusing on how different pricing to affect market structure. We develop a model of an incumbent firm and a sharing platform in a pricing game. Our analysis illustrates that the sharing platform is endowed with the ability to crowd out the incumbent when both the number of idle goods and the firm's marginal cost are large, whereas the incumbent firm is lacking the power to squeeze the sharing platform out of the market. When the number of idle goods is small, the market equilibrium is more likely to be a duopoly. We also show that the profit of sharing platform increases in the firm's marginal cost but is non-monotonic in the number of idle goods.